How do you select stocks from probable trading candidates

Discussion in 'Trading' started by supertrader_1, Apr 10, 2022.

  1. How do you deal with more than one probable trading candidates for next day?

    Assumptions:
    1. You have a tested trading system.
    2. Your probable trading candidates all meet your trading system conditions.
     
  2. NorgateData

    NorgateData Sponsor

    I assume you mean you have too many candidates for your available capital.

    This is a large field of study - I can't really do this justice in a few sentences.

    You should run some monte carlo tests against a random selection of entries - make sure your system is robust enough to handle an alternative sequence of trades.

    If you have a trading system that generates more signals than available capital with a large universe then you could conisder a smaller universe (but of course, you need to backtest it). For example, if you are using Russell 3000 as your candidate list, you could try Russell 1000 instead, or S&P 500. Make sure you do not introduce survivorship bias.

    Alternatively, investigate ranking mechanisms (i.e. a signal score) and also backtest that. Ensure that such ranking is not forward looking.

    There's a few items for thought for you, but developing a robust system requires a lot more coverage than just these points.
     
    supertrader_1 and zdreg like this.
  3. deaddog

    deaddog

    You can tighten your conditions or add criteria.

    Personally when faced with that situation I rank them by risk/reward and after that i'll look at the charts and take the smoothest looking one.
     
    supertrader_1 likes this.
  4. zdreg

    zdreg

    KISS. Don't overfit. If your system generates a satisfactory result then choose the maximum of the number of stocks you are willing to trade Then choose those stocks at random.
     
    supertrader_1 likes this.